Bardella and Mélenchon: French debt paid via inflation

Bardella and Mélenchon propose inflating away French debt

Can a massive public debt be repaid without raising taxes or cutting spending? In France, two opposing political poles say yes, using the same tool: letting inflation erode the real value of state obligations. Jordan Bardella, second-in-command of Marine Le Pen's Rassemblement National, reportedly advocates buying French debt with central bank money—quantitative easing, which the ECB used extensively in the last decade. Jean-Luc Mélenchon, leader of La France Insoumise, goes further: he wants the Eurosystem to directly cancel French debt held by the Banque de France. Two recipes that practically miccionan the same thing: paying with the printing press what cannot be paid from the budget.

What exactly do Bardella and Mélenchon propose?

The idea is not new, which makes it uncomfortable. Those pointing out the problem argue that the ECB has already eliminated market discipline by aggressively buying sovereign debt for years, devaluing currency so interest rates wouldn't punish heavily indebted countries. This open door, they suggest, explains the drift of these two French extremes, who see Frankfurt as an unaccountable ATM.

The mechanics would be simple: the central bank injects liquidity, money loses value, and French debt shrinks in real terms. But the debt doesn't disappear; it changes hands. That’s where the magic stops working.

Why Spain would end up paying the tab

Here lies the part relevant to Spanish readers. The eurozone's four big economies are Germany, France, Italy, and Spain. Among them, Spain has the second-lowest debt-to-GDP ratio. France and Italy carry much higher ratios; Germany maintains fiscal discipline no one disputes. If someone dilutes the euro, the debtor sheds weight while the creditor pays. In this split, Spain sits on the creditor side.

Some dispute official figures. One school argues actual Spanish debt nears 160% of GDP if regional liabilities are included and statistical adjustments removed; another raises it to 180%. The official narrative, however, keeps public debt below 100% of GDP, stressing low deficits and minimal spending growth due to budget extensions. Both versions agree on one point: Spain's relative position is better than France's or Italy's.

Does printing money to dilute debt work?

The most common objection is that inflation doesn't distinguish between old and new debt. If the state keeps borrowing, interest payments already incorporate that inflation, evaporating any relief. It’s like mortgage logic: a ten-year-old loan gets eroded by inflation, but only works if incomes rise at the same pace and no new loans are taken.

The most serious calculation involves growth. With debt equal to 100% of GDP, doubling GDP within a reasonable timeframe reduces it to 50% without cutting a single euro. The issue is timing: doubling an economy isn't done in one electoral term. Some note the recipe only fits a specific scenario: high inflation with high growth. High inflation with low growth leads not to solution, but tragedy.

Historical parallels abound, though loosely applied: Weimar Republic on one hand, Turkey and Argentina on the other. The difference? There, the printing press was local; here, half the currency is controlled by Frankfurt.

The cost: pensions, public salaries, and savings

None of these recipes are free, and those with assets to lose feel it most. Inflation is the tax you don't vote for: paid by savers at the expense of debtors. In countries where the middle class holds wealth in deposits and property, the hit is direct.

Add to this the austerity often accompanying such plans. In the harshest scenario analyzed, retirement age rises to 70, and pensions and public sector wages are halved. Counterarguments arrive quickly and hold weight: in France and Spain, pensions and public payrolls sustain private consumption keeping the private sector alive. Touching this doesn't just impoverish recipients; it collapses revenue and multiplies unemployment.

Revolutions, banknotes, and gold

The debate has gone down familiar paths. Some look to bitcoin and gold as havens; others recall authorities have done this for decades, just more discreetly. And some point to the biggest risk: if debt is diluted via prices, it would be strange if social unrest didn't erupt, since every historical episode of this scale ended in some form of rupture.

The interesting question isn't whether Mélenchon or Bardella say it aloud, but why two supposedly opposite projects share the same monetary notion. When debt is unsustainable and voters reject cuts, fiat currency becomes the favorite scapegoat. Then someone must explain to savers that their private pension fund just financed another country's election campaign. Good luck with that.